Credit & Capital

Low Rates, Fewer Loans Cut BofA’s 4Q Profits

Bank of America's results were helped by an $828 million release from its reserves for expected loan losses.
Matthew HellerJanuary 19, 2021

Bank of America reported Tuesday that quarterly profit fell sharply amid rock-bottom interest rates and a shrinking loan portfolio.

For the fourth quarter, the bank’s net interest income declined 16% from a year earlier to $10.25 billion, contributing to a 22% drop in profit to $5.47 billion from $6.99 billion.

Earnings of 59 cents per share topped analyst estimates of 55 cents but the year-over-year profit decline was the worst showing of any big bank to report earnings so far. Revenue fell 10% to $20.2 billion, missing estimates of $20.7 billion.

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CFO Paul Donofrio noted that Bank of America deposits grew by $361 billion and the bank also improved its capital ratios and increased liquidity to record levels, excluding loans.

“In the fourth quarter, we continued to see signs of a recovery, led by increased consumer spending, stabilizing loan demand by our commercial customers, and strong markets and investing activity,” CEO Brian Moynihan said.

But according to The Wall Street Journal, “the economic fallout from the coronavirus crisis has sapped customer demand for loans. The bank’s book of outstanding loans and leases, which had initially grown at the beginning of the pandemic, shrunk to $927.86 billion at year-end, its smallest in more than three years.”

Buoyant markets boosted Bank of America’s trading arm, but not as much as its rivals. Adjusted trading revenue of $3.06 billion in the fourth quarter was up 7% from $2.86 billion a year ago while fixed-income revenue dropped 5% to $1.74 billion, below analysts’ estimates of $2.11 billion.

The bank’s results were helped by an $828 million release from its reserves for expected loan losses. “While the economy is improving — though on an uneven path — many of the worst-case economic scenarios have been avoided, giving banks confidence to release some of their reserves into earnings,” the WSJ said.

Bank of America charged off $881 million of its loans in the quarter, down about 8% from a year earlier.

“The latest stimulus package, continued progress on vaccines, and our talented teammates … position us well as the recovery continues,” Moynihan said.

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